ABN AMRO Clearing, EuroCCP, Euroclear and Nasdaq have completed a joint proof of concept to make the use of securities more efficient when used to cover margin calls, including after business hours, using blockchain, or distributed ledger technology (DLT). It addresses significant business challenges and inefficiencies related to the current provision of collateral to CCPs and has demonstrated that a shared, resilient network can be built between collateral givers, collateral takers and intermediaries. Nasdaq developed the proof of concept for the DLT nodes while ABN AMRO Clearing, EuroCCP and Nasdaq Clearing developed a specific front-end and managed integration into their own environments.
The inefficiencies of collateral processing have been heightened as a result of recent market changes such as extended trading hours by stock exchanges and the requirement to centrally clear derivatives traded bilaterally (OTC) under the European Market Infrastructure Regulation (EMIR). Today, a CCP margin call typically needs to be covered by euro collateral within a short time frame. After the regular hours of central banks and central securities depositories, usually ending at 18:00 CET, options are limited. Several CCPs currently allow for the use of securities to cover intraday (evening) initial margin calls, but this method is rarely used due to inefficient and complex securities delivery processes.
As an increasing number of buy-side market participants centrally clear their derivatives trades, the need to provide an efficient securities collateral solution has become essential. Using the solution developed in the proof of concept, parties were able to handle the margin call, the securities collateral delivery and the return process within minutes. Clearing participants and CCPs were able to optimize their collateral positions through a collateral dashboard. The underlying collateral transfers were processed by Euroclear’s Central Securities Depository, ensuring settlement finality and regulatory compliance.